The earthling economists stare at each other and then down at their feet. "We don't normally look at things that way. We tend to say that Europe is suffering from `eurosclerosis', you know, low growth, high unemployment, bloated welfare states and a looming demographic crisis."

Europe's Social Model, Political Stability, and Competitiveness

"Maybe I need to talk to historians rather than economists to see how all this came about," says our Martian friend, blinking his eyes and flitting back several months in time to hear a lecture in Washington on The Future of Decadent Europe.

Tony Judt, the British historian . . . stresses the primacy of politics in human affairs and explains how postwar Europe created something novel in human history by transforming a tax-raising, military-spending state into a social state devoting huge amounts of money to health, education, pensions, housing, welfare and public facilities. Europe built these liberal welfare states, Mr Judt reminds his audience, not as a vision of a utopian socialist future but as a means of securing political stability and preventing a recurrence of its terrible past.

. . . "Europe today is a compromise caught somewhere between the lessons of memory and the distractions of prosperity, between prophylactic social provisions and the attraction of maximising profit. Like all such compromises, it is deeply contradictory and flawed. But of all the models that are on offer in the world today, it is the one most likely to be well-equipped to face the coming century," Mr Judt concludes.

Our visiting economist beams back a telepathic memo to the Martian Council of Economic Advisers. . . . "In their funny way, it is the Europeans who are at least discussing the big questions we Martians are facing too: how to reinvent the state's functions and strengthen the realm of collective international (interplanetary) action. . . . as the Nordic economies have shown, the state's provision of public goods serves an economic purpose. Social justice can help maximise an economy's potential and sharpen its competitiveness.

The American Model: Instability without Competitiveness?

IHT: The Enron Model of Irresponsible Capitalism

The Enron verdicts are one more blow to a new American model of capitalism already heavily criticized for its gross abuse of common-sense moral values. . . .

The system of values now governing the American corporation rejects the principle, honored in postwar America and Europe, that business should serve the interests of workers and community as well as those of investors and managers.

. . . this undermines the domestic market and economy.  . . . A corporate model that deliberately renounces responsibility for the well-being of its workforce hollows out the domestic consumer market and exports value by subsidizing what eventually will become its own competition.

CATO Unbound: Education and Inequality in the Creative Age

It was not always thus. In the 1950s and 1960s, median family income tracked rising labor productivity very closely. . . . If most productivity gains now go to the very top of the income distribution, mass upward mobility—a central part of American life—will evaporate quickly.

. . . today’s rising inequality reflects the free market at work. . . . had an unfettered free market been at work in the 1950s and 1960s, the average family would have not seen its income rise as much as it did. But in those days the free market was constrained by a set of institutions and norms—unions, a strong minimum wage, a post-World War II attitude in the business community that steady wage gains helped to keep Communism at bay, and so on. Over time, those institutions and norms have eroded, and a strong productivity-earnings connection has eroded along with it for most workers.

Thus the Creative Class and Skill Biased Technical change require a new kind of education. But they also require a new institutional structure to distribute productivity gains in a reasonably equitable way. Markets, like every other institution, rest on the consent of the participants. If enough people come to see the U.S. job market as stacked against them, all of the nation’s institutions will be at risk.

Paul Krugman: Graduates Versus Oligarchs

What we're seeing isn't the rise of a fairly broad class of knowledge workers. Instead, we're seeing the rise of a narrow oligarchy: income and wealth are becoming increasingly concentrated in the hands of a small, privileged elite.

The idea that we have a rising oligarchy is much more disturbing. It suggests that the growth of inequality may have as much to do with power relations as it does with market forces. Unfortunately, that's the real story.

Should we be worried about the increasingly oligarchic nature of American society? Yes ... Both history and modern experience tell us that highly unequal societies also tend to be highly corrupt. There's an arrow of causation that runs from diverging income trends to Jack Abramoff ...

And I'm with Alan Greenspan, who ... has repeatedly warned that growing inequality poses a threat to "democratic society.". . . It's time to face up to the fact that rising inequality is driven by the giant income gains of a tiny elite, not the modest gains of college graduates.

Hat tip to Mark Thoma.

UPDATE: Jerome says in the comments:

We need to add a link to the stories about Germany's miracle competitiveness and the disconnect to the real economy which does not benefit from the performance of German companies - both come from "reform", i.e. wage stagnation.

Here are some:

• So, How Much More 'Reform' Do We Need?
• Reform Does Not Work
• Claiming Germany
• Is this really good news???